Category Archives: BRCM

Nasdaq 100 Review

Below is the one year performance of our August 23, 2013 Nasdaq 100 Watch List stocks (8/23/2013 to 8/26/2014):

Symbol Name 2013 2014 % change
SHLD Sears Holdings Corp 39.6 34.67 -12.45%
EQIX Equinix, Inc. 170.01 217.25 27.79%
TEVA Teva Pharmaceutical 38.3 52.22 36.34%
CHRW Robinson Worldwide 57.2 68.45 19.67%
EXPE Expedia Inc. 48.84 87.43 79.01%
NUAN Nuance Comm. 19.31 17.17 -11.08%
MXIM Maxim Integrated 27.71 30.91 11.55%
BRCM Broadcom Corp. 25.24 38.81 53.76%
ISRG Intuitive Surgical 390.09 478.68 22.71%
NWSA News Corporation 15.75 17.62 11.87%
Avg. % change 23.92%
NDX Nasdaq 100 Index 30.26%

The watch list of stocks gained +23% versus a gain of +30% in the Nasdaq 100 Index.  The best performing stock, with gains of +79%, was Expedia which was a strong interest stock featured on our July 26, 2013 watch list.  At the time, we said the following:

Travel website operator Expedia (EXPE) has suddenly dropped in on our watch list with a –27.38% decline in the stock price on Friday July 26, 2013.  We’re not sure that a –28% decline in quarterly earnings requires a –27% decline in the stock price.  This type of activity suggests that since June 2012, investors had not sufficiently assessed the prospects of the company before acquiring the stock.  Extreme swings in the price indicate that there is more downside risk.

Applying Edson Gould’s Speed Resistance Lines gives us a conservative downside target of $42.56 and an extreme downside target of $22.70.

Our expectation is that there is a good chance that Expedia will decline to the $34 level.  Once falling below $34, Expedia should be reviewed on a fundamental basis as a going concern.  There may be significant opportunity for this stock as the performance has been in line with industry competitors.

As is often the case, we were too conservative in believing that EXPE would achieve the rising $34.00 level.  Instead, EXPE fell exactly to the rising $42.56 level and moved higher from there (updated chart below).

image

Another strong interest stock in the same July 26, 2013 posting, Equinix (EQIX) also fell only as low as the conservative downside target.  From the peak price of $229.02, EQIX spent only four trading days below $158.37.  It has been nothing but an uphill climb since.

The worst performing stock was Sears Holdings (SHLD).  Sears has essentially traded with descending peaks since 2007 with price support at around $30.  A break below $30 could result in significant loss for any remaining shareholders.  Private equity firms must be circling Sears at the prospect of a decline below the long-term support.

image

The strong interest stock from the August 23, 2013 watch list was Maxim Integrated Products (MXIM). At the time we said of MXIM:

“The stock of most interest to us is Maxim Integrated Products (MXIM).  Maxim has had a great run since our March 20, 2010 highlight of the chip sector as potential investment candidates (found here).  In the chart below, since the 2008 trough, Maxim has maintained a consistent ability to rebound from the conservative downside target of $26.97.  However, if the stock cannot hold the line at $26.91, then we expect that the stock will fall to the $19.03 level.  The extreme downside target is $11.10, however, we don’t expected this to be achieved.  Potential investments at the current level along with stepped up amounts of capital at $19.03 and $15.87 is recommended.”

Since August 23, 2013, Maxim increased as much as +29.05% before falling to a 1-year gain of “only” +11%.  If we include the dividend of 3.80%, the total return would be +15% for the last year.  Below is the updated SRL for MXIM with new conservative and extreme downside targets.

image

Although Maxim has fallen considerably since the June 2014 peak, we’re only willing to re-consider the stock after falling at or below the rising $27.79 level.

Investment Consideration

To put all of the gains (and losses) into perspective, we like to compare any profits with the historical market return.  Below are the annualized compounded annual growth rates (CAGR) for the last 50, 40, 30, 20 and 10 years (adjusted for inflation) [source].

years CAGR
50 5.90%
40 5.80%
30 8.42%
20 6.71%
10 6.67%

If an investor can achieve two times (2x) the 30-year CAGR in a single year, it is worth considering alternative investment opportunities while selling the principal and allowing the profits to compound in those stocks that pay a dividend.

Nasdaq 100 Watch List: August 1, 2014

Below is the performance of the six stocks from our August 9, 2013 Nasdaq 100 watch list (found here) compared to the Nasdaq 100 Index gain of +24.41% over the last year.

Symbol Name 2013 2014 % Change
BRCM Broadcom 26.06 38.19 +47%
CHRW Robinson Worldwide 56.79 67.7 +19%
EQIX Equinix 181.18 211.38 +17%
NUAN Nuance Comm. 19.11 17.83 -7%
SHLD Sears 41.35 37.27 -10%
ISRG Intuitive Surgical 391.87 453.17 +16%
average +14%
^NDX Nasdaq 100 Index +24.41%

The watch list underperformed the Nasdaq 100 by –10.41%.  However, the stock that we had a strong interest in, Broadcom (BRCM), garnered the following commentary:

“Broadcom (BRCM) tops our list this week and it is the stock that interests us the most, at the moment.  Right off the bat, we see that the stock has a price to book (P/B) ratio of 1.93.  Among the listed companies above, this is a compelling attribute.  Value Line Investment Survey says that the fair value for BRCM is 12 times cash flow.  Based on full year cash flow figures for 2012, BRCM is estimated to be fairly valued at $39.96 or +53% above to current price.

“Of concern with the data presented by Value Line is the fact that BRCM went from debt free in 2009 to nearly 15% of capital, as of the most recent reporting.  In one sense, corporate borrowing at low rates is a good thing.  However, we’re concerned that certain types of borrowing result in loss generating (is that possible) ventures that end up going nowhere.

“Broadcom has recently been slammed in the market based on reduced or declining guidance.  This from Investopedia.com:

‘A lot of what has worried Broadcom analysts and investors appeared to come home to roost with the company’s latest earnings report. Weak guidance has investors fearing that the company is losing more and more share to Qualcomm (QCOM), with an overall stagnation in high-end devices leading to fears that ASPs and margins are in danger. (Stephen D. Simpson. “Fear Dominating the Broadcom Story”. Investopedia. July 29, 2013. accessed August 10, 2013. link).’

“Dow Theory has the following downside targets:

  • $24.43
  • $20.61
  • $16.79
  • $12.97

“When we ran Edson Gould’s Speed Resistance Lines, we were only able to come up with an extreme downside target of $15.78.  It seems that the $24.43 target is highly achievable.”

On August 12, 2013 (one trading day later), our downside target of $24.43 was achieved on an intraday basis  as BRCM declined as low as $23.25.  After hitting our target low, BRCM trended higher to the tune of nearly +50% gains.

image

It should be noted that in the 2013 article cited above, investors and analysts were fearful due to anticipated lower profit margins.  Please note that the NLO team does not operate by the maxim “be fearful when others are greedy and greedy when others are fearful” as made famous by Warren Buffett.  Instead, we think in terms of the words of Dow Theorist William Peter Hamilton, the fourth editor of the Wall Street Journal, when he said the following:

The best way of reading the market is to read from the standpoint of values. The market is not like a balloon plunging hither and thither in the wind. As a whole, it represents a serious, well-considered effort on the part of farsighted and well-informed men to adjust prices to such values as exist or which are expected to exist in the not too remote future. The thought with great operators is not whether a price can be advanced, but whether the value of property which they propose to buy will lead investors and speculators six months hence to take stock at figures from ten to twenty points above present prices.

“In reading the market, therefore, the main point is to discover what a stock can be expected to be worth three months hence and then to see whether manipulators or investors are advancing the price of that stock toward those figures. It is often possible to read movements in the market very clearly in this way. To know values is to comprehend the meaning of movements in the market.

Source: Hamilton, William Peter. Stock Market Barometer. Page 38.

At the current price, Broadcom almost appears expensive when considered from where we thought investors should take an interest.  However, on August 1, 2014, widely followed market commentator and analyst Charles Payne came out with an article titled “Is It a Good Time to Buy Broadcom?”  According to Mr. Payne Broadcom is a compelling buy at the current price with an upside target of $47.  We believe that our work has adhered to the recognition of values as outlined by Charles Dow and reiterated by William Peter Hamilton.

We consider ourselves value investors.  This means buying stocks at intrinsically low valuations and never selling, regardless of market conditions.  In theory, individuals who sell stocks in periods from several days to 10 years are considered traders.  However, a different reality pervades our market experience.  Lacking a vast pool of resources, we can only operate with an eye for values and downside risk.  For those with a similar reality, we can only advise the best scenario that would ensure that the pool of investment resources is guarded against buyers remorse.  With this in mind and the nearly +50% gains in BRCM, we recommend selling only the principal while letting the profits compound into perpetuity.  This is our only remedy to dealing with our own personal fear of loss.  We hope this will prove useful to others.

Nasdaq 100 Watch List: August 1, 2014

Below are the Nasdaq 100 stocks that we’re following along with estimated price projections for the remainder of the reported fiscal year:

Nasdaq 100 Watch List: August 9, 2013

Below are the Nasdaq 100 companies that are within 10% of the 52-week low. This list is strictly for the purpose of researching whether or not the companies have viable business models.

Continue reading